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What is the tax point for a transaction including VAT?

The tax point (also known as the ‘time of supply’) determines when a transaction takes place for VAT purposes. Understanding the correct tax point helps ensure that VAT is reported on the correct VAT Return and at the correct VAT rate.

What is a tax point and why is it important?

A tax point, or time of supply, is the date on which a transaction becomes liable for VAT. It determines:

which VAT accounting period the transaction belongs to
when VAT must be declared to HMRC
which VAT rate applies to the transaction, ie. the one applicable on that date

Getting the tax point right is important because VAT must normally be accounted for in the VAT period in which the tax point occurs, rather than when payment is received.

For businesses using standard VAT accounting, this means VAT often becomes due before the customer has paid the invoice. However, businesses using the VAT Cash Accounting Scheme generally account for VAT when payments are received and made.

The tax point may need to be shown on a VAT invoice where it differs from the invoice date. HMRC distinguishes between basic tax points and actual tax points, and the correct one depends on the circumstances of the transaction.

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What is the date of supply?

Before looking at tax points in more detail, it is important to understand the date of supply, as this forms the starting point for determining when VAT becomes due.

For goods, the date of supply is generally the date the goods are made available to the customer. This could be when the goods are collected, dispatched or delivered, depending on the circumstances of the sale.

For example, if a supplier delivers a washing machine to a hair salon, the date of supply will normally be the date the customer takes possession of the goods.

For services, the date of supply is usually the date the service is completed. For example, if an accountant prepares a set of accounts for a client, the date of supply will normally be the date the work is finished.

For example, if a supplier delivers a washing machine to a hair salon, the date of supply will normally be the date the customer takes possession of the goods.

How do you know what the tax point is?

To determine the correct tax point, you first identify the basic tax point (usually the date goods are supplied or services are completed). You then consider whether an actual tax point overrides that date.

The following table summarises the most common situations:

Circumstance	Tax point
VAT invoice issued within 14 days of the basic tax point	The invoice date becomes the actual tax point
VAT invoice issued more than 14 days after the basic tax point	The basic tax point remains unchanged
VAT invoice issued before the supply takes place	The invoice date becomes the tax point
Payment received before the supply takes place	The payment date becomes the tax point for the amount received
No VAT invoice issued and no payment received in advance	The basic tax point applies
Advance payment received and no VAT invoice issued	The tax point is the date payment is received.

Under HMRC rules, a full VAT invoice is not always required. For example, if a retail sale is made to a member of the public, a VAT invoice doesn’t have to be issued unless requested.

If your business uses the VAT Cash Accounting Scheme, you generally account for VAT when payments are received from customers and when payments are made to suppliers, rather than using the normal tax point rules.

This can help improve cash flow because VAT does not usually become payable until your customer has paid you.

Can there ever be more than one tax point?

Yes. A single transaction can create multiple tax points if payments are received at different times.

Under HMRC rules, any payment received before the goods are supplied or the service is completed creates a tax point for the amount received. The remaining balance then follows the normal tax point rules.

For example, if a customer pays a deposit before delivery and settles the balance later, there will usually be:

a tax point on the date the deposit is received, for the deposit amount only
a separate tax point for the remaining balance, usually based on the invoice date (provided the VAT invoice is issued within 14 days of the date of supply).

For example, Vicky is the owner of a hairdressers and has recently ordered some new equipment to refurbish her salon.

Vicky paid a deposit of £300 on 2 April.

The equipment was delivered on 17 April and a VAT invoice for £2,400 (including VAT of £400) was issued by the supplier on 18 April.

Vicky paid the balance of £2,100 on 20 April.

The tax points will be :

2 April: the date the payment was received for the deposit of £300, which includes VAT of £50,
18 April: the date of the invoice for the final payment of £2,100 (as this was invoiced within 14 days of the date of supply), which includes VAT of £350.

Quiz: Do you understand tax points?